strategy on health care financing · health system financing is used to address health care...

for Countries of the Western Pacificand South-East Asia Regions

(2006–2010)

STRATEGYON HEALTH CARE FINANCING

World HealthOrganization

Western Pacific Region South-East Asia Region

WHO Library Cataloguing-in-Publication Data

Strategy on health care financing for countries of theWestern Pacific and South-East Asia Regions (2006-2010).

1. Delivery of health care - economics. 2. Financing, Government. 3. Health care reform.4. Health care economics and organizations. 5. Insurance, Health. 6. Health policy.7. Asia, Southeastern. 8. Western Pacific.I. World Health Organization. Regional Office for South-East Asia. II. World Health Organization.Regional Office for the Western Pacific.

ISBN 92 9061 210 X (NLM classification: WA 525)

© World Health Organization 2005All rights reserved.

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Acronyms .................................................................................4

Executive summary ..................................................................5

I. Background .......................................................................7

II. Strategy for Health Care Financing ................................... 11

III. Implementation of Health Care Financing Strategy ........... 29

Glossary of Technical Terms................................................... 30

CONTENTS

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ADB Asian Development BankARV Antiretroviral medicinesCBHI Community-based health insuranceCEA Cost-effectiveness analysisCMH Commission on Macroeconomics and Health of WHODRG Diagnosis-related groupsGATS General Agreement on Trade in ServicesGDP/GNP Gross domestic product/gross national productHCF Health care financingILO International Labour OrganizationMDG Millennium Development GoalsMTEF Medium-term expenditure frameworksNHA National health accountsOECD Organization for Economic Cooperation and

DevelopmentPPP Purchasing Power ParityPRSP Poverty reduction strategy papersSDH Social determinants of healthSEAR South-East Asia RegionSEARO Regional Office for South-East AsiaSHI Social health insuranceTRIPS Trade Related Aspects of Intellectual Property RightsWPRO Regional Office for the Western PacificWTO World Trade Organization

ACRONYMS

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Supporting adequate, sustainable, equitable and effectivehealth financing to improve health outcomes is one of the mostimportant goals of the World Health Organization. The ExecutiveBoard of WHO and the Fifty-eighth World Health Assembly havediscussed and provided strategic directions on sustainable healthfinancing, universal coverage and social health insurance.1

The Strategy on Health Care Financing for Countries of theWestern Pacific and South-East Asia Regions (2006–2010) isintended to translate this important policy direction into regional,national and subnational actions. The strategy aims to provideoperational and practical guidance to Member States in improvingoverall health care financing policy development to achieveadequate, stable and effective health financing that providesequitable access to health services of assured quality.

The strategy is closely linked with broader health system andsector development issues. The WHO functional framework forhealth system financing is used to address health care financingissues and challenges together with international health anddevelopment goals. The strategy reflects the main findings andrecommendations from international, regional and country-specificexperiences, available evidence, regional and biregional meetingsand consultations on health care financing.

The strategy contains “issues and challenges”, “main policyobjectives” and “actions” by Member States and WHO in thefollowing areas:

n increasing investment and public spending on health;n achieving universal coverage and strengthening social

safety nets;n developing prepayment schemes, including social health

insurance;n supporting the national and international health and

development process;n strengthening regulatory frameworks and functional

interventions;n improving evidence for health financing policy development

and implementation; andn monitoring and evaluation.

EXECUTIVE SUMMARY

1 115th Executive Board session on 24 January 2005 has adopted resolution EB115.R13 onsustainable health financing, universal coverage and social health insurance. This topic wasincluded in the agenda of the Fifty-eighth World Health Assembly held in May 2005.

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The attainment of the main policy objectives and strategiesrequires coherent actions to be taken by Member States, togetherwith WHO Headquarters, regional offices and country offices andin close collaboration with national and international counterparts.The implementation of the HCF strategy will support healthfinancing reforms in Member States with the following focus:

n stable revenue levels over the medium to long term;n financial sustainability of priority health programmes;n reduction in out-of-pocket funding for health;n removal of financial barriers to seeking care;n equity in service access and contributions; andn efficiency and effectiveness of resource allocation and use

of health services of an acceptable quality.

The following steps are proposed to translate the strategy intocountry-specific socioeconomic situations:

n Use the strategy as a framework for developing andimproving national policies and strategies on health carefinancing for 2006-2010 where appropriate.

n Incorporate the strategy into short- and medium-termnational socioeconomic development plans and actions atthe national and subnational levels.

n Collaborate with all stakeholders and development partnersat the country and intercountry levels on formulating andimplementing health care financing strategic actions.

It is expected that the strategy will facilitate policy dialogue onhealth care financing both at the regional and country levels. Thestrategy will guide WHO’s technical support and collaboration withthe Member States in the area of health financing and createsynergies with all other WHO collaborative efforts for improvingpublic health.

EXECUTIVE SUMMARY


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Stable and sustainable health financing is considered anessential component for achieving important population healthgoals. Appropriately arranged health care financing (HCF) helpsgovernments mobilize adequate financial resources for health,allocate them rationally, and use them equitably and effectively.Equitable and pro-poor health financing policies promote universalaccess to the most needed health services. They also contribute tosocial protection and strengthen the social safety nets in rapidlychanging socioeconomic environments. In such broad context,HCF contributes to the overall social and economic developmentprocess.

Health care is becoming more expensive both in developed anddeveloping countries. The excessive use of medical services with ahigh technological input is one of the leading factors of health carecost increases in the Asia and Pacific region. The broad applicationof service fees and poor management of resources and services arethe other major factors driving costs in developing countries.

The lack of public financing has led to cost recovery, whichbroadly promotes the charging of user fees at public health facilities.In some countries and areas, user fees are being used as a policytool to strengthen the role of market forces in the health sector.Some health sector reform measures support the private sector’srole in the financing and provision of health services, includingprivatization of public health facilities. Through supply-sideinitiatives, certain medical services and products such as minorsurgery, high technology diagnostic services and pharmaceuticalshave been extensively provided at full or partial cost to patients.The management of chronic and noncommunicable diseases is acommon concern in both the South-East Asia and Western PacificRegions of the World Health Organization. Long treatment periodsand the severity of complications lead to high treatment costs.These costs are a burden to individual patients and the healthsector.

BACKGROUND I

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Pacific island countries and areas spend considerable parts oftheir budgets on the overseas treatment of chronic diseases, whichis not always justified in terms of health benefits. Future healthspending can be significantly reduced through effective healthprevention and promotion measures.

The share of private financing in total health care spendingin the Asia-Pacific region has significantly increased in the pasttwo decades, mainly due to out-of-pocket payments. Numerousstudies have shown that out-of-pocket payment is an inequitableand inefficient way of mobilizing resources for health services.There is considerable data that low-income families spend ahigher percentage of their income on health compared to high-income households. Even modestly charged service fees maylead to catastrophic expenses2 if the frequency of service use issufficiently high. High level of out-of-pocket health spending bythe households is recognized as one of the main causes ofpoverty. Low-income populations often stretch all financialresources, including the disposal of their productive assets, topay for much-needed health care. But the majority still cannotafford the ever-increasing user charges. Ill health pushes a risingnumber of people who cannot afford the costs of health careinto poverty.

There are large disparities in the health status and care-seekingbehaviour between rich and poor, between genders, as well asbetween urban and rural populations. The poor have significantlypoorer health status and they are more dependent on publicfinancing for health. It was estimated that a 1% increase in publicfinancing on health reduces child mortality among the poor bytwice as much compared with the non-poor.3

There is growing interest in assessing various healthfinancing arrangements relative to health outcomes, populationaccess, equity in financing and service coverage. In response tothis demand, The World Health Report 2000 - Health Systems:Improving Performance provided a functional framework forhealth system financing. The 115th session of the ExecutiveBoard and the Fifty-eighth World Health Assembly have discussedand endorsed a resolution on sustainable health financing,universal coverage and social health insurance.4 Without doubt,a health system in which individuals have to pay out of theirown pockets at time of illness creates equity concern. It promotesexclusion of the poorest members of the society from the use ofhealth services, restricting access to only those that can affordthe fees. In contrast, a health system predominantly funded bypublic sources including general taxes and social healthinsurance provides good and equitable access by all to basic

2 Catastrophic spending is defined as being 40% or more of a household’s effective income, net of subsistence expenditure.3 Health Sector Reform and Reproductive Health. WHO Web Page Overview, 2004.4 Resolutions EB115.R13 and WHA58.33.


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health services. In effect, health risks and corresponding fundsare pooled together to serve as a safety net for the members,thus avoiding the need to pay at time of use or illness. Thesetypes of prepayment-based financing arrangements separatepayment from utilization, reduce the undue financial burdensand contain the costs of health services.

The table below describes the main issues and challenges indifferent socioeconomic settings with varying degree of out-of-pocket payments in total health spending.

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The WHO Regional Office for the Western Pacific (WPRO) andthe Regional Office for South- East Asia (SEARO) have taken theinitiative to develop a strategy to address region-specific HCF issues.The strategy focuses on selected interventions with potential impacton population health. The diagram below summarizes theframework of the strategy. The challenges, main causes and majorconsequences are based on extensively documented national,regional and global data. The strategy intends to support country-specific HCF policy and reform debates for addressing these issueseffectively.


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The strategy contains “issues and challenges”, “main policyobjectives”, and “actions” by Member States and WHO in thefollowing areas:

(1) Increasing investment and public spending on health

Most countries in the Western Pacific and the South-East AsiaRegions rely on a mixture of government budget, health insurance,external funding and private sources including nongovernmentalarrangements and out of pocket payments.

Despite the variety of financing sources, the level of healthspending in both regions is relatively low. Many countries andareas spend less than 5% of their gross domestic product (GDP)5

on health and per capita health spending is much lower than $35per person per year.6

In a number of countries and areas the share of governmentspending on health has been decreasing in the last 10–20 years7

not necessarily due to budget cuts per se but due to out-of-pocketspending increasing at a much faster pace.

Lack of financial resources for health is only half of the problem.The significant proportion of the limited and inadequate fundingfor health is often spent on illness rather than health. Currently,many countries and areas are struggling to enhance and maintainthe role of their government in funding and providing services withpublic health significance.8

5 How Much Should Countries Spend on Health? W. Savedoff, 2003, WHO Health Financing Technical Brief. Note that WHO has neveradopted a recommended level of health spending although various citations have taken 5% of GDP as a rule-of-thumb benchmark levelof spending needed for an essential package of health services.

6 Macroeconomics and Health: Investing in Health for Economic Development, Geneva, WHO, 2001. This is a benchmark cost of a basicpackage of services, which a population should be entitled.

7 Regional data bank.8 Services refer to the WHO proposed essential public health functions as outlined in Regional Committee resolution WPR/RC53.R7.

STRATEGY FOR HEALTHCARE FINANCING II

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Strategies elaborated under this area focus on comprehensivenational policies on HCF, formulating solutions for inadequatefunding, improving efficiency and effectiveness of resource use,ascertaining financial sustainability, and building capacity for betterresource administration and management.

The Commission on Macroeconomics and Health of WHO (CMH),in its inaugural 2001 report, recommended “low- and middle-income”countries to mobilize an additional 1% of the GNP for health by2007 and 2% by 2015.

Box 1: Target level of government spending on health


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Actions by Member States

n Increase budgetary spending for health by 1% of GNP by2007 and 2 % of GNP by 2015 compared with current levelsof spending in low- and middle-income countries.

n Analyse country health, social and development situationto set strategic priorities for increased health investments.

n Analyse public financing for key public health programmesin terms of geographical access and service utilization bypopulation groups.

n Evaluate the financial impact of proposed health policiesas a regular government activity.

n Formulate HCF policies to address financial constraintsand organizational weaknesses in delivering services.

n Develop plans for gradually replacing donor funding withstable domestic resources.

n Increase spending on public health at peripheral levels.n Evaluate the impact of tobacco and alcohol taxes for health

care financing.n Establish coherent and accountable mechanisms through

various technical programmes.

Actions by WHO

n Encourage Member States to develop HCF policies andstrategies.

n Support countries in:n assessing the financial implications of national health

policies;n analysis for resource needs, expenditures and revenue

projections; andn technical support in training national experts and

decision-makers on HCF policy.

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Universal coverage has been achieved among developed andsome developing Member States of the regions such as Australia,Japan, the Republic of Korea, Mongolia, New Zealand and Thailandthrough a mixture of general and earmarked taxation, social andprivate health insurance. China, Indonesia, the Lao People’sDemocratic Republic, the Philippines and Viet Nam have introducedsocial health insurance although the major challenge remains toextend health insurance coverage to the informal sector, whichaccounts for the majority of the population. Universal coverage isalso promoted by establishing social safety nets for health,predominantly through taxation, by targeting the vulnerable andlow-income populations. A combination of user fee exemptionmechanisms and the distribution of free health cards to eligiblepoor have been experimented with in Indonesia and Viet Nam.

(2) Achieving universal coverage and strengthening social

safety nets

Universal coverage constitutes a central area of WHO policyadvocacy. It is defined as access to key health promotion,preventive, curative and rehabilitative health interventions for allat an affordable cost.9 Universal coverage creates equity in access.On the other hand, economic constraints limit the amount of healthcare available to a population. Public funding, often in the form ofgeneral taxes along with a combination of social health insurance(SHI) premiums, community based financing and other prepaymentschemes is an effective mechanism to reach universal coverage.

9 Resolution WHA58.20.

The latest NHA data are used to sketch a profile of the WesternPacific and South East-Asia Regions. The graph below plots totalamount spent on health expressed as percent of GDP and how muchof this total is funded from out of pocket payments.

Box 2: Regional helath care financing profile


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n Target population segments with the greatest health needsfor public funding.

n Assess population health status, health service provision,health priorities and investment needs.

n Define the content and costs of essential public healthinterventions.10

n Develop and implement a basic package of health careservices.

n Promote universal coverage and establish social safety nets.n Provide higher subsidies to health facilities, which provide

health services to the poor and vulnerable.

Actions by WHO

n Promote the concept of essential public health functionsand services.

n Support national and international meetings to disseminatebest practice and evidence.

n Promote active policy dialogue with other ministries,international development agencies, donor communitiesand the legislative bodies.

n Support studies on universal coverage and social safetynets.

The strategies elaborated below predominantly focus onestablishing universal guarantees for essential health interventionsfor all citizens and gradually improving the depth of health benefitsavailable to the population. As a minimum, universal coverageguarantees an entitlement to needed health services to all citizensand provides a risk protection mechanism, such as a safety net,against catastrophic health spending of the poor and vulnerable.

10 WHO aims to provide the best available evidence on cost-effective health interventions to assist the Member States to define andimplement country-specific essential health interventions or packages that maximize health with a given set of resources.

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Prepayment is one of the most important determinants ofsustainable health care financing. Based on the concept of socialsolidarity, prepayment schemes contribute to equity goals becauseof their risk sharing and fund pooling potential. There is potentialto translate out-of-pocket health expenditures into prepaymentschemes. Social health insurance (SHI) is one of them. It differsfrom private health insurance where contributions are often directlyrelated to the risk of ill health of the person being covered. Clearlythere is no single answer to whether one insurance model suits allcountries and areas.

The Asia-Pacific region has good experience and evidence thatSHI is a sustainable HCF option. As part of a broader social securitydevelopment strategy, SHI schemes with an integral healthinsurance arm can provide greater financial protection and equitableaccess to health services.

Strategies elaborated under this area focus on institutionalstrengthening of prepayment schemes, including community basedhealth insurance (CBHI) and SHI. Institutionalization of SHIrequires well-defined time frames and coordinated actions. CBHIschemes can be implemented as an integral part and an interimstep to translate out-of-pocket payments into prepayment. Thecapacity-building activities include general scheme design, benefitspackage, member registration, premium setting, revenue collection,risk and fund pooling between regional and community-basedsickness funds, contracting, provider payment methods, and socialmarketing. These issues are fairly complex and therefore WHO’sstrategic standpoint is to support these initiatives, engineer moreinternational cooperation both technically and financially, andprovide advice on SHI to the Member States.

(3) Developing prepayment schemes, including social

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n Define a consensus-based process with key stakeholders.n Develop and refine HCF policy for prepayment and SHI.n Undertake capacity assessment.n Establish clear lines of responsibilities.

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n Build human and institutional capacity to manageprepayment schemes and SHI.

n Share and disseminate information.n Make realistic plans to expand coverage of existing

programmes.n Pilot prepayment and SHI schemes.

Actions by WHOn Provide technical assistance in developing prepayment

schemes and SHI, including policy, legislation andimplementation.

n Disseminate information among countries and regions.n Collaborate with national and international partners for

establishing prepayment schemes and SHI.n Provide capacity-building to Member States.n Support implementation of pilot schemes.

(4) Supporting the national and international health and

development process

Health status is highly correlated with macroeconomic indicatorssuch as income, working conditions, unemployment, poverty andenvironmental factors. The regional economies are directly affectedby increased globalization and foreign direct investment, while someMember States are in talks to join the World Trade Organization(WTO). Most macroeconomic issues that deal with investment, jobcreation and economic growth occupy national policy and reformagendas. Social and human investments in improving health, genderequity, education and the empowerment of women also help thepopulations make better health decisions and therefore yield higherlong-term economic growth.

The Commission on Macroeconomics and Health (CMH) hasportrayed how investing in health can improve the health of thepoor and contribute to economic growth and development.Furthermore, the Millennium Development Goals (MDG), the WorldBank’s initiatives on Poverty Reduction Strategy Papers (PRSP) andMedium-Term Expenditure Frameworks (MTEF), which span threeto five years, have direct impact on achieving health improvementsamong the poor and vulnerable.

WHO aims to capitalize on these multisectoral, multi-agencyand multi-party strategic actions that need to continue between2006 and 2010 with due attention given to health financing. Thestrategies proposed herewith focus on advocating and implementingthe globally publicized work of WHO in conjunction with the work ofother United Nations agencies and international developmentpartners in promoting macroeconomic, social and humandevelopment and growth, and the attainment of major internationaldevelopment goals.


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n Increase awareness about the links between economicdevelopment and health.

n Improve coordination among national agencies(ministries of health, finance and trade, labour and socialsecurity, as well as social insurance agencies andlegislative bodies.)

n Develop partnerships with international donor,governmental and nongovernmental agencies.

n Formulate policies and assess their financial impact forreduction of morbidity and mortality among the poor anddisadvantaged.

n Promote HCF debates.n Build accountability channels between the legislative and

executive branches, decision-makers, health care providersand consumers.

Actions by WHO

n Support country level work towards attainment of healthand development goals.

n Promote policy dialogue and advocate the MillenniumDevelopment agenda.

n Support development of national expertise through policyorientation meetings and seminars on HCF policies.

n Collaborate with donors for grant assistance andborrowing.

n Facilitate collaboration among national agencies andinternational development partners.

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n Promote bilateral talks among regional members on tradeand health.

n Assist countries in understanding the implications of TRIPSand GATS.

n Conduct analytical reviews and share country experiences.n Organize meetings and policy debates for policy

formulation.n Support small-scale pilot projects on economic gains of

health investments.

1. Eradicate extreme povertyand hunger

2. Achieve universal primaryeducation

3. Promote gender equalityand empower women

4. Reduce child mortality5. Improve maternal health6. Combat HIV/AIDS, malaria

and other diseases7. Ensure environmental

sustainability8. Develop a global

partnership fordevelopment

Box 3: Health financing and the Millennium Development Goals

Three out of eight MDG are di-rectly related to health. The firstgoal on “eradication of extremepoverty and hunger” is of particu-lar importance due to its close linkwith health financing. Ill healthis one of the reasons of povertyand the poor populations havelower health status. The viciouscircle in the relationship betweenhealth and poverty has been evi-denced with catastrophically highhealth expenditures causing pov-erty or pushing poor people fur-ther into it.

Source: United Nations Development Programme

MILLENNIUM DEVELOPMENT GOALS

(5) Strengthening regulatory frameworks and functional

interventions

The core functions of health financing are collecting revenue,pooling resources and purchasing health services.11 Most MemberStates have a fragmented set of administrative structures forcollecting revenue, pooling resources and purchasing, all of whichrequire better coordination and regulatory oversight. In somecountries social security agencies directly collect payroll taxes,whereas in others the tax collection agencies allocate budgets forhealth insurance.

A social safety net for the poor funded out of general taxes anda health insurance fund administered by a parastatal socialinsurance agency don’t always pool risks. Sometimes each agencyapplies different types of payment methods and different contractingmethods with the same health care providers.

11 The World Health Report 2000 - Health Systems: Improving Performance.


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Efficient and effective HCF systems constitute a good basis forfunctionally strong and transparent health systems. Coherentactions of ministries of finance and trade that are currentlyevaluating or implementing TRIPS and GATS of the World TradeOrganization and other independent bodies regulating public andprivate health sector are required for strengthening health systems.

The strategic interventions discussed in this section aim toaddress these complexities and expand on regional and internationalexperiments in best practices as they fit the needs of the MemberStates. They aim to improve the efficiency of health financing,predominantly at provider level, focusing on hospital sector reformprogrammes and the financing of pharmaceuticals.

Actions by Member Statesn Strengthen regulations of public and private medical and

pharmaceutical practice.n Strengthen regulatory mechanisms for private health

insurance and managed care.n Build local skills for setting health priorities.n Improve risk pooling by avoiding fragmentation.n Ensure greater cross-subsidies from rich regions to poor.n Develop accountable and transparent resource allocation

mechanisms.

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n Assess user fee policy at public and private healthfacilities.

n Improve health budgets by employing realistic estimationtechniques and activity-based programme budgeting.

n Review salary systems for health staff and pilotperformance-based payments by linking incentives toservice quality.

n Pilot capitation, case-based and activity-based budgetpayment methods through which the beneficiary receivescomplete health coverage for a broad range of healthservices.

n Improve capital planning on expensive medical equipment,construction and extension of hospitals.

Actions by WHOn Support HCF legislation and regulatory framework

development.n Provide policy options and technical assistance for improved

fund pooling.n Collect, develop and disseminate best practices in legislative

and regulatory frameworks.n Develop appropriate tools and techniques for budgeting,

financial planning, and management in collaboration withdevelopment partners.

n Exchange country experiences and best practices fromdifferent socio-economic settings.

n Train national experts through training courses.


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(6) Improving evidence for health financing policy development

and implementation

Reliable information on HCF is important for effective healthpolicy formulation, implementation and monitoring. Themobilization, allocation and use of financial resources affect thepopulation. The same level of health can be achieved atconsiderably different costs. National health accounts (NHA) aimto help countries improve their data and information on how muchthe entire nation is spending on health care, what goods andservices are being delivered, and who is paying for the services.NHA is fast becoming the tool for monitoring resource flows fordisease specific programmes such as HIV/AIDS. It also provides abasis for tracking external and domestic resources contributed tothe health sector in support of national health policies.

Box 4: National health accounts

Policies on optimal financing, expenditure rationing, allocating,using resources, and choosing cost-effective interventions require goodaccounting and reporting systems. NHA is an internationally acceptedtool for collecting, cata-loguing and estimatingfinancial flows through thehealth system.

There is growing interestin NHA among all MemberStates. As shown in thediagram, NHA is wellestablished in a number ofcountries across all WHOregions. NHA collaborationin the Western Pacific Regionand the South-East AsiaRegion is also streamlined bythe Asia and Pacific NHA Network (APNHAN). Following thepublication of A System of Health Accounts by the Organization forEconomic Cooperation and Development (OECD), WHO and partneragencies have launched the Guide to Producing NHA in 2003.

There is increased awareness among policy and decision-makers that HCF reform pursued with timely, accurate androutinely updated information produces more desirable results.Appropriate HCF functions help the health system to achieve betterhealth gain from a given set of resources. Evidence from cost-effectiveness studies also assists policy-makers in setting prioritiesfor health investments.

Currently comprehensive, accurate and reliable informationis limited in the Asia-Pacific region. A big gap exists between

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countries and areas in terms of data availability, comparability,information source, scope, data collection methodology,presentation, and use for policy formulation, implementation andmonitoring. Some country reports narrowly focus only on publichealth spending sourced from central and local governmentbudgets. It is an incomplete exercise to analyse national healthfinancing which excludes other nongovernmental and private,especially out-of-pocket, health expenditures. Even in places wherehealth services are supposedly free, patients frequently makesubstantial official and unofficial payments.

The strategies covered under this area aim to strengthencountry level health finance information production capacity andits use for health policy and reform. The strategy emphasizesinternationally accepted national health accounting standards,classifications and guides aimed to help countries and areas toimprove their data and information on health expenditure andfinancing.


n Build national analytical skills for production of HCF data.n Promote collaboration between decision makers in the

political and clinical environment and academicresearchers.

n Define clear policy research questions.n Identify implementation mechanisms.n Improve NHA awareness and advocate their use as a policy

tool through meetings and training seminars.n Build capacity for institutionalization of annual NHA

production.n Undertake CEA studies for determining health priorities,

investment planning and targeted health spending.


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Actions by WHO

n Provide evidence-based policy options, research findings,recommendations and guidance in collaboration withdevelopment partners.

n Support studies on cost-effectiveness, household healthspending, poverty and provider payment methods.

n Build local capacity to analyze national health survey datawith proper analytical tools.

n Assist the lead agencies that produce NHA on specifictechnical areas

n methodology development;n standard definitions;n accounting methods;n data sources;n matrix display options; andn estimation methods.

n Share NHA information at global, regional, inter-countrylevels.

n Evaluate feasibility of setting up health systemobservatories in the region.

(7) Monitoring and evaluation

Implementation of health financing policies and actionsadvocated and discussed in the strategy need to be monitored andevaluated at regular intervals. This exercise is needed for buildingmore evidence for future policy and for the assessment of whetherthe policy objectives discussed in the strategy have achieved theexpected results.

Monitoring and evaluation strategies contribute to theassessment of MDG, CMH and other national and internationaldevelopment goals. The evidence will be useful for better targetingof donor action on MDG. The amount of investments in health,which various strategies have addressed, is expected to increase.Likewise, the attainment of universal coverage of essential healthservices, as well as the population covered by SHI and otherprepayment schemes such as CBHI, should be monitored. On theexpenditure front, the reduction in the share of out-of-pocketfunding for health also needs to be monitored.

The strategies proposed are expected to evaluate and monitorthe increase of investment in health, attainment of universalcoverage of essential health services, the percentage of thepopulation covered by prepayment financing schemes, thereduction in share of out-of-pocket funding and other strategicinterventions.

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n Set feasible targets for improving HCF.n Develop indicators for monitoring and evaluation.n Strengthen existing monitoring and evaluation system.n Produce baseline data.n Conduct evaluation studies.n Hold public debates by bringing together academic,

administrative, health finance experts and economists.n Monitor rapid increases of health care costs and

undertake effective cost-containment measures.n Apply economic evaluation for priority setting and

maximization of health gains.n Reduce inequities and financial burdens on households.n Monitor catastrophic health expenditure and reduce

proportion of direct out-of-pocket payments in totalhealth care expenditure.

n Undertake public expenditure reviews.n Develop MTEF, PRSP and action plans for TRIPS and

GATS.

Actions by WHO

n Regularly conduct situation analyses.n Build capacity to plan, use and monitor health resources.n Provide technical support to monitor out-of-pocket

payments, economic and financial analyses of healthinterventions.

n Assist analytical review of different HCF policy options,formulation of new policies and organization of policydebates.


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n Share HCF experiences, policy analysis and lessonslearned among Member States.

n Facilitate intersectoral dialogues, meetings, andcoordination of internal and external resources andtargeted health investments.

n Support health system research activities.n Monitor and evaluate the impact of HCF reforms.

The following tables provide information and guidance todevelop country-specific indicators and feasible targets toimprove monitoring and evaluation of HCF policies and reformsin the regions.

12 Poverty gap ratio is the mean distance separating the population from the poverty line (with the non-poor being given a distance ofzero), expressed as a percentage of the poverty line.

Within the strategy, countries are encouraged to set upfeasible targets for improving country-level HCF. These need tobe incorporated into the national level investment plans and forscaling up the necessary interventions which suit to the needs

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of each Member State. The strategy proposes the following targetsin core HCF focus areas outlined in this document.

The following indicators are proposed for monitoring theprogress on the implementation of HCF strategy at the regionallevel.


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The attainment of the main policy objectives and strategiesrequires coherent actions to be taken by Member States, togetherwith WHO Headquarters, regional offices, and country offices. Theimplementation of HCF strategy will support health financingreforms in the Member States with the following focus:

n Stable level of revenue over medium to long term.n Financial sustainability of priority health programmes.n Reduction in out-of-pocket funding for health.n Removal of financial barriers to seeking care.n Equity in service access and contributions.n Efficiency and effectiveness of resource allocation and use

of health services of an acceptable quality.

There is no single model that addresses all these issues,therefore the strategy proposes a well-balanced mix of financingarrangements in revenue collection, resource pooling, allocationand purchasing health services. Appropriate and diligentlyformulated health financing policies will help the proposedstrategies to be implemented at regional, national, and sub-nationallevels according to the needs and socio-economic situation in eachMember State. Improvements in the health financing system willalso improve accountability and transparency of the use of publicfunds to respond to the health care needs of the citizens.

The following steps are proposed to translate the strategy intocountry-specific socioeconomic situations:

n Use the strategy as a framework for developing andimproving national policies and strategies on health carefinancing for 2006-2010 where appropriate.

n Incorporate the strategy into short- and medium-termnational socioeconomic development plans and actions atthe national and subnational level.

n Collaborate with all stakeholders and development partnersat country, intercountry levels on formulating andimplementing health care financing strategic actions.

IMPLEMENTATION OF HEALTHCARE FINANCING STRATEGY III

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The tendency of purchasing health insurance benefit packagesby individuals with high health risk affecting health expenditureincreases more than people with low health risk.

A minimum set of services that are offered to an insured personwithin a level of contributions.

Cost of inputs whose useful life is usually longer than one year.In terms of health investments, refers to expenditure on physicalassets such as hospitals, beds, health centres, medical anddiagnostic plant and equipment, etc.

A fixed payment to a service provider, calculated for each listedor enrolled person per period of time. Specified amount paidperiodically to health provider for a group of specified healthservices, regardless of quantity rendered.

A situation where a household spends on health more than 40%of its income after paying for subsistence needs, e.g. food. It canbe caused by catastrophic illness, either high cost but lowfrequency event or by low cost and high frequency events.

Setting insurance rates based on the average cost of providinghealth services to all people in a geographical area, withoutadjusting for each individual’s medical history or likelihood ofusing medical services. With community ratings, premiums donot vary for different groups of subscribers or with such variablesas the group’s claims experience, age, sex or health status. Theintent of a community rating is to spread the cost of illness evenlyover all subscribers rather than charging the sick more than thehealthy for coverage.

The process in which a legal agreement between a payer and asubscribing group or individual such as purchasers, insurers,takes place which specifies rates, performance covenants, therelationship among the parties, schedule of benefits and otherpertinent conditions.

This terminology is often used for social security systems wheremembers regularly contribute to a particular social securityscheme in order to have clearly defined social benefits such asold age pension, health services, maternity allowance and othermonetary allowance in the event of disability or death. Non-contributory social security scheme refers to social assistanceprogrammes as well as services funded directly by the state budgetor other public sources.

GLOSSARY OF TECHNICAL TERMS

Adverse selection

Benefit package

Capital cost, capitalexpenditure

Capitation payment

Catastrophic healthexpenditure

Community rating

Contracting

Contributory scheme


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A fixed amount of payment, which must be paid by a beneficiaryfor each service at time of service use.

Resources in monetary terms expended in carrying out activities.

Average cost: Total costs divided by total units of output.

Direct cost: A cost, which is related directly to a particular activityor product.

Economic cost: Expenditure, expressed in monetary term forall resources, consumed in a direct and indirect form. Economiccost a broader term.

Financial cost: Expenditure, expressed in monetary term foritems actually consumed during a specific period of time to deliverservices.

Fixed cost: Cost of inputs, which remains stable with increaseof output unit number.

Incremental cost: Costs of new activity parts of which alreadyexists.

Indirect cost or overheads: Expenses associated with utilities,administration, and supervision.

Marginal cost: The amount at any given volume of output bywhich aggregate costs are changed if the volume of output isincreased or decreased by one unit.

Opportunity cost: The maximum amount, which could beobtained at any given point of time if assets or resources were tobe sold, hired or put to the most valuable alternative use.

Recurrent cost: Costs of inputs whose useful life is less thanone year.

Replacement cost: The cost of replacing a machine or otherasset at any given point of time, either now or in the future.

Semi-fixed cost: Cost of inputs, which increases step wise inrelation to output unit increase.

Unit cost: The cost of a single unit of output, such as cost perout patient visit or hospital bed.

Variable cost: Cost of inputs, which changes in linear relationto output unit number.

Co-paymentCost

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A form of economic evaluation where all costs and consequencesare expressed in money terms. It enables to assess whether aparticular objective is worth achieving.

A set of measures to control or reduce waste of resources inallocation, to stop costs from rising, to reduce the cost in realterms, to prevent costs from rising faster the national resources,e.g. GDP. Cost containment policy measures may differ:

- budget ceilings or use of fixed budget- control on staff numbers,- control on prices of goods and services- control on quantity of goods- control on financial incentives e.g. restrictions on sale or

promotion of drugs by doctors- control on construction and extension of hospitals- control on over-utilization of expensive medical equipment- control on medical school admission and specialist training

A form of economic evaluation where costs are expressed in moneyterms but consequences are expressed in physical units. It isused to compare different ways of achieving the same objective.

Term refers to public goods and services with a meaning of shiftingfinancial burden from taxpayers to those who benefit them. Afull or partial cost of providing goods and services can be recoveredwith a price, which does not include the profit.

Term refers to any direct payment made by users of services toproviders of those goods and services. Commonly used methodon demand side.

The techniques and processes of ascertaining the expendituresthe amount of expenditure incurred on particular products andservices.

Total value of borrowings of an entity such as a sovereign countryor a firm, which constitutes a liability of the entity, measured ata given point in time.

Transfer of administrative power from a central to a local authority.Also referred as “devolution of power”.

The level of consumption preferred by consumers at differentprices.

Increased role and responsibility of a local authority over healthservice organization and HCF (see also: decentralization).

Cost-benefit analysis

Cost containment

Cost-effectivenessanalysis

Cost recovery

Cost sharing

Costing

Debt stock

Decentralization

Demand

Devolution


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Groups of similar medical diagnosis for which payments can bemade to providers for services undertaken. Each group has a setfixed rate attached to it and accordingly, a provider receives thefixed fee per patient episode regardless of the cost of the treatment.The revenue is linearly related to the number of admissions, butnot to the volume of services provided or the length of stay. Thefixed payment encourages hospitals to eliminate unnecessaryservices, to specialize in the types of care they do best and reducecomplications, e.g. hospital acquired infections as these add tocosts without generating revenue.

Contribution dedicated to health or particular function.Earmarked taxes sometimes reduce flexibility over time inallocating public funds to the best possible use. It may also reduceaccountability of agencies to which funds are allocated when thoserevenues are determined by factors independent of the numberor quality of services provided.

A reduction in average cost per unit as output increases. It occurswhere fixed costs in a production process are high.

The effect of the activity and the end results, outcomes or benefitsfor the population achieved in relation to the stated objectives. Itis an expression of desired effect of programme, serviceintervention in reducing a health problem or improving anunsatisfactory health situation.

The effect or end results achieved in relation to the effort expendedin terms of money, resources and time.

Technical efficiency: The production of the greatest amount orquality of outcome for any specified level of resources.

Allocative efficiency: An allocation of the mix of resources formaximal benefit, i.e. such that no change in spending prioritiescould improve the overall welfare.

The absence of systematic disparities in health between socialgroups who have different levels of underlying social advantageor disadvantage - that is, different positions in a social hierarchy.Inequities in health systematically put groups of people who arealready socially disadvantaged such as by virtue of being poor,female, and/or members of a disenfranchised racial, ethnic, orreligious group at further disadvantage with respect to their health.

Horizontal equity: Equal payment for households in the samecircumstances such as the same income.

Vertical equity: Persons with greater need should be treatedmore favourably than others. The extent to which unequalhouseholds pay unequal share.

Diagnosis-relatedgroups (DRG)

Earmarked tax

Economies of scale

Effectiveness

Efficiency

Equity

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A way health care is financed is perfectly fair if the ratio of totalhealth contribution to total non-food spending is identical for allhouseholds, independently of their income, their health statusand their use of health services.

Payments to a provider for each item or services provided.

Regular and supplementary income, cash, savings, loans, gifts,regular remittances or pensions, and other financial instruments.

Investment by firm based in one country in actual productivecapacity or other real assets in another country, normally throughcreation of a subsidiary by a multinational corporation. Used asa measure of globalization of capital. Effects on growth andinequality in developing countries disputed.

Enterprises, which are registered and licensed to conduct businessand whose employees earn regular salaries and wages.

The core functions of health financing are: collecting revenue,pooling of resources and purchasing:

n Collecting revenue: is the process by which health systemsreceive money from households, companies and institutionsas well as from donors. Various ways of collecting revenuesare general taxation, social health insurance, private healthinsurance, out-of-pocket payments and grant and charitabledonations and multilateral borrowing.

n Pooling of resources: the process of accumulation andmanagement of revenues to ensure that the risk of havingto pay for health care is borne by all the members of thepool and not by each contributor individually. Various formsof tax and social health insurance schemes aiming at sharingthe financial risk and funds among the contributingmembers are the main focus of this function.

n Purchasing: of health services is the process by which themost needed and effective health interventions are chosenand provided in an efficient and equitable manner, and theproviders are paid appropriately from the pooled financialresources for delivering defined sets of services andinterventions. Purchasing has three interwoven elements;“allocating financial resources”, establishing “providerpayment options” and “contracting” with providers.

Organizations contributing to the coverage of health careexpenditures or providing the funding for health care throughbudgets, contracts, grants or donations to a health care provider.

A fixed cash sum in advance, intended to cover the total cost ofservices for a certain period of time where the recipient agency in

Fair financing

Fee for service

Financial assets

Foreign directinvestment (FDI)

Formal sector

Functions of healthcare financing

Funders

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charge of administering the budget can often exercise libertiessuch as decide how much to spend for each line item within thetotal amount allocated.

A means of raising additional revenue through taxing goods andservices at the point of sale (see also value added tax).

The total value of goods and services produced within a countryeach year.

The total value of goods and services produced by a country’scompanies and residents.

A study of how scarce resources are allocated to and within healtheconomy, including quantity of resources used, volume of servicesproduced, and distribution of services across populations andtheir effects on individuals and societies.

Financial protection against medical care costs arising fromdisease or injury. The reduction or elimination of the uncertainrisks of loss for the individual or household, by combining a largernumber of similarly exposed individuals or households who areincluded in a common fund that makes good the loss caused toany one member.

Community based health insurance (CBHI): A micro-insurancescheme managed independently by community members, acommunity-based organization whereby the term community maybe defined as members of a professional group, residents of aparticular location, a faith-based organization etc.

Micro insurance: Also referred as CBHI, small-scale, local andindependently managed scheme, often set up because people areunwilling to trust in larger schemes. Most of the micro schemesare weak to deal with unpredictable large expenses.

Social health insurance: Compulsory health insurance, regardedas part of a social security system, funded from contributions –often community rated- and managed by an autonomous yet state/parastate legal entity.

Private health insurance: A health insurance scheme oftencharacterized with the following features: voluntary, managedoutside the social security system with risk-rated or community-rated premiums, managed by an independent legal entity (anincorporation, organization, association or foundation) not by astate/quasi state body, operating for profit or non-profit.

Voluntary health insurance. Health insurance that offers benefitto its members entitled on a voluntary basis, which can bemanaged by a private, public or quasi-public body.

Goods and servicetaxes (GST)

Gross domesticproduct (GDP)

Gross nationalproduct (GNP)

Health economics

Health insurance

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An organization that accepts responsibility for organizing andproviding a defined set of services for its enrolled population, inexchange for a predetermined, fixed, periodic payment for eachperson or family unit enrolled (see also Managed Care).

As one of the Health for All global strategy, WHO advised theMember States to spend minimum 5% of GDP on health. In manycountries only one disease, such as diabetes could consume theentire amount. High level of spending may not necessarily leadto high health outcomes. At any given level of income andspending health outcome varies. Therefore, efficient use ofavailable funds becomes critical. It is also important to correctimbalances, low spending in some areas and high spending inothers.

Enterprises, which are not registered and licensed to conductbusiness but do so in an entrepreneurial, independent manner,and whose earnings are not reported or declared as part of apayroll process. Compared with wage-earning workers in theformal sector, the informal sector has more labour-intensive modeof production. Informal production units typically operate at alow level of organization, with little or no division between labourand capital on small-scale labour operations. Their existence isbased on casual employment, kinship or personal and socialrelations rather than contractual arrangements with formalagreement.

Resource allocation behaviour of large homogenous units in theeconomy: in health care, for example, the behaviour of allconsumers or producers in health systems.

The form of health insurance that combines the financing anddelivery of health services and integrates elements of costcontainment with quality of health services. Managed careorganization (see also: Health Maintenance Organizations) employsphysicians and may contract with or own the clinics and hospitalsfrom which services are provided to its covered members.Members are not free to choose any provider but must choosefrom the managed care plan’s providers or contracted ones. Thereis a network of providers or those whom it has contracted.

The resource allocation decisions made by smaller units within acountry such as by individuals, households, firms and healthfacilities.

Abuse of insurance benefit by insured people which yields to anincrease in health expenditure.

A framework and methodology for measurement and presentationof information on total national health expenditure includingpublic and private sources of funds. NHA tracks financial

Health maintenanceorganization (HMO)

Health spending

Informal sector

Macroeconomics

Managed care

Microeconomics

Moral hazard

National HealthAccounts (NHA)


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resources from sources, to providers and functions. It is importantbecause, health systems are complex and policy makers needtools to analyse HCF, how and how much resources used in ahealth system, what resource allocation patterns, use and optionsexist.

Payment out of private purse as opposed to public made directlyby a patient to a health service provider without reimbursement.

The public or private organization that is responsible for paymentfor health care expenses. Payers may be insurance companies orself-insured employers or persons.

Contributions levied against labour income. They are inexpensiveto administer but easier to avoid than other forms of taxes.

A measure of human progress, using overall well-being to judgethe level of a country’s development.

Items that remain in an existing state, such as housing, building,and land, or items which increase in value, such as gold jewellery,or items which decrease in value, such as appliances, clothesand vehicles.

An agreement or consensus among relevant partners on the issuesto be addressed and on the approaches or strategies to deal withthem.

A method of paying for the cost of health care services in advanceof their use. A method providing in advance for the cost ofpredetermined benefits for a population group, through regularperiodic payments in the form of premiums, dues, orcontributions, including those contributions that are made to ahealth fund by employers on behalf of their employees.

Ratio between the benefit paid by health insurance and totalbenefit provided to a patient.

Amount paid to a carrier for providing insurance coverage undera contract. Money paid out in advance for insurance coverage.Contributions are often defined as percentage of salary for formalsector employees or monthly level of payments for informal sectoremployees to health insurance fund on regular basis.

Ways or means of paying health care providers such as on acapitation, case based, fee-for-service or other basis (see alsoindividual definitions).

Prospective payment: Payment based on a formula that allowsservice providers to agree the total amount of funding in advanceand then payments against that amount are made on a monthlybasis.

Out-of-pocketpayments

Payer

Pay roll taxes

Per capita income

Physical assets

Policy

Prepayment scheme

Prepayment ratio

Premium

Provider paymentmethods

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Retrospective payment. Payment based on services actuallydelivered in accordance with a fee schedule that is determined inadvance.

This entity not only pays the premium, but also controls thepremium amount before paying it to the provider. Included inthe category of purchasers or payers are patients, businessesand managed care organizations. While patients and businessesfunction as ultimate purchasers, managed care organizations andinsurance companies serve a processing or payer function.

The process by which available resources are distributed betweencompeting uses as a means of achieving a particular goal.

Setting premium rates by insurers for individuals and smallemployers by taking the health status of the insured people intoaccount frequently pricing high-risk individuals and smallemployers out of the market.

Composed of family and clan relationships, networks, membershipin groups and community organizations.

Benefits in-cash or in-kind that are financed by the state, notcontributory, and that are mostly provided on the basis of a meansor income level.

A complex concept, which can be understood roughly as networksof social relations and associated norms to facilitate action. Socialcapital is beneficial as a resource for individuals’ and communities’well being in terms of information, influence and solidarity. Theconcept has been applied widely ranging from families, educationto public health, and economic development.

The set of policies and programmes designed to promote efficientand effective labour markets, protect individuals from the risksinherent in earning a living and support individuals (ADB). Aseries of public measures against the economic and social distresscaused by the stoppage or substantial reduction of earningsresulting from sickness, maternity, employment, injury,unemployment, invalidity, old age and death (ILO).

A system that would allow economically and socially deprivedcitizens to continue to receive social services through free services,subsidized care, social insurance and social assistance. Thesystem should assure that citizens retire with dignity and income– pension benefits; citizens are insulated from the loss of incomedue to economic forces out of their control – unemploymentbenefits; citizens not bear the full risk and costs for illness andinjury – health benefits; and citizens are provided social welfaresupport.

Purchaser

Resource allocation

Risk rating

Social assets

Social assistance

Social capital

Social protection

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The protection which society provides for its members through aseries of public measures, against the economic and social distressthat other wise would be caused by the stoppage or substantialreduction of earnings resulting from sickness, maternity,employment injury, unemployment, invalidity, old age and death.

The awareness of unity and a willingness to bear its consequences.Everybody is aware and accepts that the size of the personal returnmay not match the initial investment. Family and clan solidarityis based usually on moral obligation.

Taxes used for effectively reducing the demand for harmfulsubstances such as tobacco and alcohol by raising the price closerto its true social cost. These taxes may create a conflict of interestin a way that lowered demand and consumption can affect sourcesof revenue.

Access to key health promotion, preventive, curative andrehabilitative health interventions for all, at an affordable cost,thereby achieving equity in access. Incorporates two dimensions:depth-health care coverage as in adequate health care-and width-population coverage.

Payment for goods and services according to price list or feeschedule. User fee system is inequitable by its own nature. Itmakes the patients bear the cost of services and it makes thepoor pay proportionally more than the rich.

Imposed and collected tax on the value added at each stage of theproduction and distribution of a good and service (see also: Goodsand Services Tax).

The process in which non-member nations of the world enterinto bilateral and multilateral talks with the members of the WorldTrade Organization to become a member and benefit fromglobalization of trade and services.

Social security

Solidarity

Special consumptiontaxes

Universal Coverage

User charges

Value added tax(VAT)

WTO accession

World HealthOrganization

Western Pacific Region South-East Asia Region

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